September 24, 2008 - Amedisys Inc. (AMED-NASDAQ) provides home health and hospice services in the United States. Its home health services include skilled nursing and home health aide services; physical, occupational, and speech therapy; and medically oriented social work to eligible individuals who require ongoing care.

As of December31, 2007, the company owned and operated 325 Medicare-certified homehealth agencies and 29 Medicare-certified hospice agencies; and managed the operations of 4 Medicare-certified home health and 2 Medicare-certified hospice agencies in 30 states in the United States. Amedisys was founded in 1982 and is headquartered in Baton Rouge, Louisiana.

We're all getting older, and Amedisys is there to help us do it. Demographics favor this company's success, and management has proven it can take advantage of demographics. Earnings have been nothing less than spectacular for the last 5 years, and while analysts see them slowing from a rapid pace to simply a very good one, profitability should drive this stock for some time.

For the last 5 years, earnings per share (eps) averaged a gain of 33.3% a year, going from 62 cents in 2003, to $1.13 in 2004, followed by $1.41 in 2005, then $1.72 in '06, and last year, they came in at $2.32. This year analysts see $3.11 and $.3.75 next year. For the next 5 years, consensus growth estimate from the 14 analysts following the stock is 21.6% a year, on average. Earnings for the third quarter (to be announced on October 28) are projected at 82 cents a share. Next quarter look for 85 cents a share. A year ago, for the same 2 quarters, eps was 61 cents and 63 cents respectively.

In the second quarter, revenues were up 84.4% from the same quarter last year. EPS was up 33.3%. Contributing to the better results were a newly acquired company and expanded clinical programs. Also helping is the aging population as it continues to grow and need more services. The acquisition was TLC Health Care, a $395 million purchase that puts AMED into 5 new states. Estimates are for an additional $300 million in revenues per year from the new entity. In the second quarter it added $75 million to the company's top line.

All this good news hasn't been lost on investors. The stock is up over 30% in the last 6 months, pushing the price to an all time high of $68 only a few months ago. But the news isn't all good, especially in the short run. Integrating TLC into AMED's way of doing business, from conversion of TLC's data systems to costs of severance packages will all affect earnings in a negative way. In the second quarter, they cost 6 cents a share, but analysts see a 30 cent improvement in earnings for 2009 just from this one acquisition.

Medicare re-imbursement is always a concern for any company catering to this demographic. Recent passage of a Medicare bill rejected the provision of cutting payments to physicians by 10.6%, keeping current payments and incorporates a 1.1% raise in 2009.

More numbers: Market Cap is $1.37 billion with 26.8 million shares outstanding. Price to Sales is 1.48 with Price to Book at 2.69. Profit Margin for the last 12 months was 8.19% with an Operating Margin of 13.3%. Return on Assets were 9.72% and Return on Equity was 16.48%. There is no dividend.

This stock is off its highs (isn't everything?) and recently bounced up from $47 to $50. Still, it's well down from $68 and worth investigating by most investors. With earnings of $3.80 expected next year, at $50 a share, the stock's forward P/E is a tempting 13 on a company that is expected to grow earnings by 21.6% a year for the next 5. Those numbers make this a compelling company to research.

- Company Web site: www.amedisys.com

- Ted Allrich